Brazilian Tax Reform: First supplementary law published

On January 16, 2025, Supplementary Law No. 214/2025 was published after the Executive Branch approved Supplementary Bill (“PLP”) No. 68/2024.

The supplementary law provides for general rules regarding the Subnational Tax on Goods and Services (IBS), the Federal Contribution on Goods and Services (CBS), and the Federal Excise Tax (“selective tax,” or IS), in addition to creating the IBS Management Committee.

PLP No. 68/2024 was approved with vetoes on specific provisions by the President of Brazil, among which we highlight:

• Provision establishing that investment funds and endowments were not subject to IBS and CBS taxes.
• Joint liability of the purchaser for the payment of IBS and CBS if the supplier’s collection does not follow the split payment system.
• Provision that kept endowment managers from adhering to the special arrangement that applies to financial services.
• Non-incidence of the IS on exports.
• Provision that addressed the potential recording of presumed IBS credit in resale transactions to the Manaus Free Zone (ZFM) if there is no proof that the good was received in the ZFM destination establishment or in case such good is resold or transferred outside the free zone.
• Possibility of improvement to products subject to zero IPI tax rates (Tax on Industrial Products) using CBS presumed credits.

A full or partial veto means that the President of Brazil does not approve certain aspects of a given bill that has been approved by the Brazilian Congress (House of Representatives and Federal Senate).

The Brazilian Constitution states that the veto must be analyzed by representatives in a joint session within 30 calendar days. There must be an absolute majority vote to deny the veto, that is, 257 representatives and 41 senators, calculated separately.

In addition to analyzing the vetoes, the tax reform is still being analyzed.

The next steps will include:

• Publishing specific regulations;
• Establishing a reference rate through a Federal Senate resolution; and
• Approving the second supplementary bill (PLP 108/2024) to provide for implementing and structuring the Management Committee, administrative litigation, allocation of tax resources, and provisions regarding the transition from the State Value-Added Tax (ICMS) to the IBS.

Demarest’s Tax team is available to provide any further clarifications that may be necessary.